Senate Bill No. 382
Introduced By harp
A Bill for an Act entitled: An Act generally revising private securities litigation laws; establishing requirements for securities fraud actions; providing sanctions for abusive litigation; limiting damages; creating a safe harbor for forward-looking statements; and providing an immediate effective date.
Be it enacted by the Legislature of the State of Montana:
Section 1. Requirements for securities fraud actions -- definition. (1) In any private action arising under this part, if the plaintiff alleges that the defendant made an untrue statement or omitted a material fact necessary in order to make the statements made, in light of the circumstances in which they were made, not misleading, the complaint must specify each statement alleged to have been misleading and the reason or reasons why the statement is misleading. If an allegation regarding the statement or omission is made on information and belief, the complaint must state with particularity all facts on which that belief is based.
(2) In any private action arising under this part in which the plaintiff may recover money damages only on proof that the defendant acted with a particular state of mind, the complaint must, with respect to each act or omission alleged to violate this part, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.
(3) In any private action arising under this part, the court shall on the motion of any defendant, dismiss the complaint if the requirements of subsections (1) and (2) are not met.
(4) (a) In any private action arising under this part, all discovery and other proceedings must be stayed during the pendency of any motion to dismiss unless the court finds, upon the motion of any party, that particularized discovery is necessary to preserve evidence or to prevent undue prejudice to that party.
(b) During the pendency of any stay of discovery pursuant to this subsection (4), unless otherwise ordered by the court, any party to the action with actual notice of the allegations contained in the complaint shall treat all documents, data compilations, including electronically recorded or stored data, and tangible objects that are in the custody or control of the party and that are relevant to the allegations as if they were the subject of a continuing request for production of documents from an opposing party under the Montana Rules of Civil Procedure.
(5) A party aggrieved by the willful failure of an opposing party to comply with subsection (4) may apply to the court for an order awarding appropriate sanctions.
(6) In any private action arising under this part, the plaintiff has the burden of proving that the act or omission of the defendant alleged to violate this title caused the loss for which the plaintiff seeks to recover damages.
(7) As used in [sections 1 through 9], "private action arising under this part" means an action against a person referred to in [section 5(2)].
Section 2. Sanctions. (1) In any private action arising under this part, upon final adjudication of the action, the court shall include in the record specific findings regarding compliance by each party and each attorney representing any party with each requirement of Rule 11 of the Montana Rules of Civil Procedure as to any complaint, responsive pleading, or dispositive motion.
(2) If the court makes a finding under subsection (1) that a party or attorney violated any requirement of Rule 11 of the Montana Rules of Civil Procedure as to any complaint, responsive pleading, or dispositive motion, the court shall impose sanctions on the party or attorney in accordance with Rule 11. Prior to making a finding that any party or attorney has violated Rule 11, the court shall give the party or attorney notice and an opportunity to respond.
(3) (a) Subject to subsections (3)(b) and (3)(c), for the purposes of subsection (2), the court shall adopt a presumption that the appropriate sanction:
(i) for failure of any responsive pleading or dispositive motion to comply with any requirement of Rule 11 is an award to the opposing party of the reasonable attorney fees and other expenses incurred as a direct result of the violation; and
(ii) for substantial failure of any complaint to comply with any requirement of Rule 11 is an award to the opposing party of the reasonable attorney fees and other expenses incurred in the action.
(b) The presumption described in subsection (3)(a) may be rebutted only upon proof by the party or attorney against whom sanctions are to be imposed that:
(i) the award of attorney fees and other expenses will impose an unreasonable burden on that party or attorney and would be unjust and the failure to make an award would not impose a greater burden on the party in whose favor sanctions are to be imposed; or
(ii) the violation of Rule 11 was de minimis.
(c) If the party or attorney against whom sanctions are to be imposed meets its burden under subsection (3)(b), the court shall award the sanctions that the court considers appropriate pursuant to Rule 11.
Section 3. Defendant's right to written interrogatories. In any private action arising under this part in which the plaintiff may recover money damages, the court shall, when requested by a defendant, submit to the jury a written interrogatory on the issue of each defendant's state of mind at the time the alleged violation occurred.
Section 4. Limitation on damages. (1) The provisions of this section limit any damages otherwise available under this part.
(2) Except as provided in subsection (3), in any private action arising under this part in which the plaintiff seeks to establish damages by reference to the market price of a security that is traded in a national securities market, the award of damages to the plaintiff may not exceed the difference between the purchase or sale price paid or received, as appropriate, by the plaintiff for the subject security and the mean trading price of that security during the 90-day period beginning on the date on which the information correcting the misstatement or omission that is the basis for the action is disseminated to the market.
(3) In any private action arising under this part in which the plaintiff seeks to establish damages by reference to the market price of a security that is traded on a national securities market, if the plaintiff sells or repurchases the subject security prior to the expiration of the 90-day period described in subsection (2), the plaintiff's damages may not exceed the difference between the purchase or sale price paid or received, as appropriate, by the plaintiff for the security and the mean trading price of the security during the period beginning immediately after dissemination of information correcting the misstatement or omission and ending on the date on which the plaintiff sells or repurchases the security.
(4) For purposes of this section, the mean trading price of a security must be an average of the daily trading price of that security, determined as of the close of the market each day during the 90-day period referred to in subsection (2).
Section 5. Applicability of safe harbor for forward-looking statements. (1) For the purposes of this section, the following definitions apply:
(a) "Forward-looking statement" means:
(i) a statement containing a projection of revenue; income per share, including income loss; earnings per share, including earnings loss; capital expenditures; dividends; capital structure; or other financial items;
(ii) a statement of the plans and objectives of management for future operations, including plans or objectives relating to the products or services of the issuer;
(iii) a statement of future economic performance, including any statement contained in a discussion and analysis of financial condition by the management or in the results of operations;
(iv) any statement of the assumptions underlying or relating to any statement described in subsection (1)(a)(i), (1)(a)(ii), or (1)(a)(iii);
(v) any report issued by an outside reviewer retained by an issuer, to the extent that the report assesses a forward-looking statement made by the issuer; or
(vi) a statement containing a projection or estimate of other items as may be specified by rule or regulation of the commissioner.
(b) "Going private transaction" has the meaning given that term under the rules or regulations of the United States securities and exchange commission issued pursuant to section 13(e) of the Securities Exchange Act of 1934, 15 U.S.C. 78m(e).
(c) "Investment company" has the same meaning as in section 3(a) of the federal Investment Company Act of 1940, 15 U.S.C. 80a-3(a).
(d) (i) "Issuer" has the meaning provided in 30-10-103.
(ii) The term does not include a broker-dealer as defined in 30-10-103.
(e) "Penny stock" has the same meaning as in section 3(a)(51) of the Securities Exchange Act of 1934, 15 U.S.C. 78c(a)(51), and the rules and regulations or orders issued pursuant to that section.
(f) "Person acting on behalf of an issuer" means an officer, director, or employee of the issuer.
(g) The terms "blank check company", "direct participation investment program", "executive officer of an entity", "limited liability company", "partnership", and "rollup transaction" have the meanings given those terms by rule or regulation of the commissioner.
(2) This section applies only to a forward-looking statement made by:
(a) an issuer that, at the time that the statement is made, is subject to the reporting requirements of section (13)(a) or (15)(d) of the Securities Exchange Act of 1934, 15 U.S.C. 78m(a) or 15 U.S.C. 78o(d);
(b) a person acting on behalf of an issuer subject to the provisions of subsection (2)(a);
(c) an outside reviewer retained by an issuer subject to the provisions of subsection (2)(a) making a statement on behalf of that issuer; or
(d) an underwriter, with respect to information provided by an issuer subject to the provisions of subsection (2)(a) or information derived from information provided by that issuer.
(3) Except to the extent otherwise specifically provided by rule, regulation, or order of the securities and exchange commission, this section does not apply to a forward-looking statement:
(a) that is made with respect to the business or operations of the issuer, if the issuer:
(i) during the 3-year period preceding the date on which the statement was first made:
(A) was convicted of any felony or misdemeanor described in section 15(b)(4)(B)(i) through (iv) of the Securities Exchange Act of 1934, 15 U.S.C. 78o(b)(4)(B), or was convicted under 30-10-306;
(B) has been made the subject of a judicial or administrative decree or order arising out of a governmental action that:
(I) prohibits future violations of the antifraud provisions of state or federal securities laws;
(II) requires that the issuer cease and desist from violating the antifraud provisions of state or federal securities laws; or
(III) determines that the issuer violated the antifraud provisions of state or federal securities laws;
(ii) makes the forward-looking statement in connection with an offering of securities by a blank check company;
(iii) issues penny stock;
(iv) makes the forward-looking statement in connection with a rollup transaction; or
(v) makes the forward-looking statement in connection with a going private transaction; or
(b) that is:
(i) included in a financial statement prepared in accordance with generally accepted accounting principles;
(ii) contained in a registration statement of, or otherwise issued by, an investment company;
(iii) made in connection with a tender offer;
(iv) made in connection with an initial public offering;
(v) made in connection with an offering by, or relating to the operations of, a partnership, a limited liability company, or a direct participation investment program; or
(vi) made in a disclosure of beneficial ownership in a report required to be filed with the United States securities and exchange commission pursuant to section 13(d) of the Securities Exchange Act of 1934, 15 U.S.C. 78m(d).
(4) (a) Except as provided in subsection (3), in any private action arising under this part that is based on an untrue statement of a material fact or omission of a material fact necessary to make the statement not misleading, a person referred to in subsection (2) is not liable with respect to any forward-looking statement, whether written or oral, if and to the extent that:
(i) the forward-looking statement is identified as a forward-looking statement and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement or is immaterial; or
(ii) the plaintiff fails to prove that the forward-looking statement:
(A) if made by a natural person, was made with actual knowledge by that person that the statement was false or misleading; or
(B) if made by a business entity, was made by or with the approval of an executive officer of that entity and made or approved by that officer with actual knowledge by that officer that the statement was false or misleading.
(b) In the case of an oral forward-looking statement made by an issuer that is subject to the reporting requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934, 15 U.S.C. 78m(a) or 15 U.S.C. 78o(d) or by a person acting on behalf of the issuer, the requirement in subsection (4)(a) must be considered satisfied under the following circumstances:
(i) if the oral forward-looking statement is accompanied by a cautionary statement that the particular oral statement is a forward-looking statement and that the actual results could differ materially from those projected in the forward-looking statement; and
(ii) if the oral forward-looking statement is accompanied by an oral statement that additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statement is contained in a readily available written document or portion of the written document;
(iii) if the accompanying oral statement referred to in subsection (4)(b)(ii) identifies the document or portion of the document that contains the additional information about those factors relating to the forward-looking statement; and
(iv) if the information contained in that written document is a cautionary statement that satisfies the standard established in subsection (4)(a).
(c) Any document filed with the commissioner or with the securities and exchange commission or generally disseminated must be considered to be readily available for purposes of this section.
(5) This section does not impose upon any person a duty to update a forward-looking statement.
(6) On any motion to dismiss based on subsection (4)(a), the court shall consider:
(a) any statement cited in the complaint; and
(b) any cautionary statement accompanying the forward-looking statement that is not subject to material dispute and that is cited by the defendant.
(7) In any private action arising under this part, the court shall stay discovery, other than discovery that is specifically directed to the applicability of the exemption provided for in this section, during the pendency of any motion by a defendant for summary judgment that is based on the grounds that:
(a) the statement or omission upon which the complaint is based is a forward-looking statement within the meaning of this section; and
(b) the exemption provided for in this section precludes a claim for relief.
Section 6. Prohibition of referral fees. A broker, dealer, or person associated with a broker or dealer, may not solicit or accept, directly or indirectly, remuneration for assisting an attorney in obtaining the representation of any person in any private action under this part or under the Securities Act of 1933, 15 U.S.C. 77a, et seq.
Section 7. Prosecution of persons aiding violations. For purposes of any action brought by the commissioner under 30-10-304, 30-10-305, or 30-10-306, for violations of 30-10-301 through 30-10-303, any person that knowingly provides substantial assistance to another person in violation of a provision of this part or of any rule or regulation issued under this part must be considered to be in violation of that provision to the same extent as the person to whom the assistance is provided.
Section 8. Loss causation. In any private action arising under this part, if any portion or all of the amount recoverable represents other than the depreciation in value of the subject security resulting from a part of the prospectus or oral communication not being true or omitting to state a material fact required to be stated in the prospectus or oral communication or necessary to make the statement not misleading, then that portion or amount is not recoverable with respect to the liability of that person.
Section 9. Construction. [Sections 1 through 8] may not be considered to create or ratify any implied private right of action or to prevent the commissioner, by rule or regulation, from restricting or otherwise regulating private actions under Montana securities laws.
Section 10. Codification instruction. [Sections 1 through 9] are intended to be codified as an integral part of Title 30, chapter 10, part 3, and the provisions of Title 30, chapter 10, part 3, apply to [sections 1 through 9].
Section 11. Severability. If a part of [this act] is invalid, all valid parts that are severable from the invalid part remain in effect. If a part of [this act] is invalid in one or more of its applications, the part remains in effect in all valid applications that are severable from the invalid applications.
Section 12. Effective date. [This act] is effective on passage and approval.
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